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Abuse and dominance: no easy answers

An in-depth discussion summarised some of the difficult technical issues raised by abuse of dominance cas...

An in-depth discussion summarised some of the difficult technical issues raised by abuse of dominance cases and their enforcement.

Considering abuse of dominance cases, the final panel of the day was chaired by Nicola Northway of Baker McKenzie.

Counsel on the Competition Appeal Tribunal (CAT) Pfizer case, Ronit Kreisberger of Monckton Chambers gave some insight on facts of the case, which centred on accusations of overcharging.

The case applied the United Brands test, which said that a price is abusively high if the difference between cost incurred and price charged is excessive and if that price is unfair either in itself or when compared to other products.

The question of yardsticks was integral to the case, whether for profitability or price. The Competition and Markets Authority (CMA) construed the ‘or’ in ‘unfair in itself or by reference to other products’, as meaning that they are true alternatives. So, if the price of a product is unfair in itself, it does not need to be compared to other products.

Kreisberger proposed that for both policy and principle for excessive pricing, where there “is absence of theory of harm which involves the exclusion of rivals, where there is no single clear benchmark, but a range of benchmarks pointing in different directions, competition law should not intervene directly in price”.

John Davies of Compass Lexecon endorsed this proposal from an economist’s perspective, before outlining some of the analysis by the CMA, particularly the estimate of the excess of price over cost, which is “essential to an excessive pricing case”.

The problem comes because such cases are often about a company’s smaller products, for which it can be hard to allocate indirect costs, such as overheads. This is particularly true in the pharmaceutical sector, where the cost of physical production and transport is relatively small.

Instead, he said, you need to think about profitability overall, but there is no fundamental principle to determine which cost allocation method is correct.

“There is enormous difficulty for companies in thinking about how they can comply with a law which, on the face of it, which would seem to potentially make prosecutable and potentially make a breach, normal business behaviour, such as higher prices,” he said “but without any clear benchmarks of when is too far”.

The legal side of these abuse of dominance cases was then considered by Geert Goeteyn from Shearman & Sterling, who focused on the Intel case, concerning rebates.

He spoke of the debate between lawyers and economists over whether it is enough to have a formalist assessment of rebate schemes or if economic assessment is needed. He highlighted the court’s position that dominance itself is not an issue, but abuse of that dominance is, and secondly that “it is not wrong for a dominant company to try and get itself an economic advantage, to the extent that it competes on the merits, that is fine even if that means that there are others who are not as efficient and fall by the wayside, that is the normal process of competition”.

He handed over to Pinar Bagci of Brattle Group who said, with regards to an efficient competitor test, “the Commission has been going towards the economic test such as this” ever since the Article 82 (of the EC treaty) guidelines were written and there has been growing pressure to do analysis.

She described this as “a two-edged sword” because while it means more work for economists, “efficiency is a dynamic concept and when a competition authority looks at a market, it often only sees what is happening now at a static level, it doesn’t have foresight into what is happening in the future and has limited information about what happened in the past”, which highlights the importance of context.

An inefficient competitor being pushed out of the market fairly, might not affect consumers now, but it might be a company which would innovate in the future, so “if the Commission is going to do full effects analysis, it has to do it through time” and different industries will have different contexts.

ENFORCEMENT AND BEYOND

Private enforcement on the continent was the next topic, thanks to Laurent Geelhand of Hausfeld, who said that in France, there is a lot of scrutiny of dominant companies and they must justify every action or face high damages.

As a claimant lawyer, he said there was a need to be picky about cases, as it can be hard to prove that your client went out of business because of the dominant party. However, “we have exciting years ahead of us on the private enforcement front”, looking forward at investigations into Facebook and Gazprom by German authorities.

Christopher Brown of Matrix Chambers raised two UK cases: Google v Streetmap and Socrates v Law Society, whose common thread was the importance of the counterfactual. In those cases, the question was whether an abuse had been committed in the first place.

Both cases made use of the ‘hot tubbing’ of experts, which meant the tribunal “needs to be on top of the economics from day one” because it requires the courts to be able to interact with the experts.

What was interesting in Google, was that while the alleged abuse was in the search engine market, the effect was in the maps market, in which Google was not dominant. The judge held that the claimant had to show that there had been an appreciable effect in the latter and that in this case, Google was just a better product.

In Socrates, the claimant won the case, which is more common than often thought, he said, and pointed out that it was the first case allowed to proceed under the CAT’s fast track mechanism.

The in-house perspective came from Liz Walker of BT Group, who wondered how best to defend one’s position, while keeping sales people in check. She expressed concern at the uncertainty over how an authority would respond when an apparent discrepancy is actually because a competitor is allocating costs in a different way: “From a business practical perspective, I don’t think it gives us any real certainty.”

She voiced the need to give clearer guidance, but added: “The business perspective is so complex and I don’t know that this is understood in every market in which these things are adjudicated.” Northway endorsed this, saying: “Consistency is important. There needs to be more guidance... so that people can be comfortable that the guidance they are giving the business is correct.”

She continued: “The UK, EU, US, everyone will approach this slightly differently and as a result, if you give a piece of one-size-fits-all piece of guidance, that is not going to help.”

Davies called for “a strong presumption not to intervene so that the benefit of the doubt is given to the presumptively dominant company”, adding that “there is good economic analysis that suggests acting on a false positive is worse for the economy than letting a guilty party go free”.

He pointed to the “more relaxed approach in the US than in the EU” towards abuse of dominance, arguing that fear of a US situation “is not necessarily quite such a bad thing”.

This report is part of CDR’s coverage of its Winter Competition Litigation Symposium. See below for further reports from this event:

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